Wednesday, September 15, 2010

Traders owning any type of bullish position going into today's VIX expiration woke up to a pleasant surprise. Since assessing the volatility landscape in last week's The Impending VIX Expiration post, we've seen a heavy VIX continue drifting lower day by day. However, this morning's pop erased the losses of the past few days lifting the fear index up towards last Thursday's price levels. We all know (hopefully) that settling VIX options can get a little squirrely. Though I outlined a fairly systematic method for analyzing volatility, there is a bit of luck involved with getting a favorable settlement value. Keep in mind however, for as many settlements that move in your favor, you will likely have an equal amount where you get shafted. Of course, some choose to simply forego all the drama unfolding around settlement by exiting their positions beforehand.

Per the $VRO chart below, September's official settlement value came out to 22.97. At $1.41 higher than yesterday's close and $.42 higher than this morning's opening print on the VIX, settlement certainly tilted in the favor of the bulls (click to enlarge).

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